Nokia sees continuing hefty mobile market growth

NEW YORK/HELSINKI (Reuters) - Nokia, the world's largest mobile phone maker, expects global handset sale volumes to grow by more than 10 percent in 2006 compared to this year and sees slight to moderate growth in mobile networks.

The firm, which sells one of every three mobile phones, said on Thursday the global market will grow even faster than it had previously expected, passing three billion subscriptions in 2008, rather than in 2010 as it had earlier forecast.

The Finnish mobile giant also told investors in presentations in New York that it expected to grow its share of the market next year.

Nokia said the market would not only grow in terms of volumes from this year's forecast of 780 million handsets, but also increase in overall value, which it said showed the industry was still on the upswing.

"This industry is not ex-growth. ... This business is not (in) terminal decline, this is in terms of ASPs (average selling prices) and margins," said chief operating officer Olli-Pekka Kallasvuo, who takes over from Jorma Ollila as chief executive in June 2006.

Nokia's margins and ASPs have fallen as it pushes for growth in emerging markets, where customers typically buy cheaper phones.

"On the networks side...taking share is part of the strategy and in the devices business we really estimate we will be gaining share in 2006," Kallasvuo said.

Nokia repeated its target for a group operating margin of 17 percent in the next one to two years.

It also set an operating margin target of 17-18 percent over the same period for its Mobile Phones and Multimedia divisions together — a target which had previously encompassed all mobile devices, including those from Nokia's Enterprise division.

"This is a positive industry outlook that is perhaps slightly above our 2006 estimates for infrastructure and devices," said Harris Nesbitt analyst John Bucher.

But while Nokia expects growth in wireless infrastructure, it cut the operating margin target for its Networks division to 13 percent from 14 percent, set a year ago.

Networks has faced fierce price competition as it pushes into new growth areas, and many analysts had expected a cut in the target, which Ollila had previously said was "not easy" to reach in current conditions.

Kallasvuo said he expected consolidation in mobile devices as competition gets tougher, and that rivals with small market shares were likely to quit the business, which would be difficult for other consumer electronics firms to enter.

"We want to be the driver of this consolidation also going forward, and without mentioning any people specifically it will be very, very difficult for any company that has not been able to get on the critical mass level to do it going forward."

He believed companies with less than 15 percent of the global market would find it difficult to sustain their position.

Market researchers Gartner put Nokia's share of the market at 32.6 percent in the third quarter, followed by US-based Motorola with 18.7 percent.

Samsung Electronics had 12.5 percent, the Sony Ericsson joint venture stood at 6.7 percent and LG Electronics at 6.5 percent.

Ed Snyder, of Charter Equity Research, pointed out there had been little consolidation so far.

"It's probably true in general but it's going to be a long-term thing," he said on the sidelines of the presentation of Kallasvuo's assertion. "You can't be a world player without 15 percent, but you can probably still make money."


New models

Ollila said Nokia had made strong progress in improving its customer relations and its product line-up, launching 56 new handsets so far this year — including three new 3G phones unveiled earlier on Thursday.

"Design is only the tip of the iceberg but extremely important and in an area where we have become less competitive...but we are making progress here," Ollila said.

"We still have a way to go to improve our design."

Nokia reiterated that by the end of 2006 it would cut overall research and development spending to 9 percent to 10 percent of net sales.

Additional reporting by Daniel Frykholm in Helsinki.

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